The central bank, Bank Indonesia, has said that it continued to record a deficit in the balance of payments for insurance services and pension funds last year.
Bank Indonesia data show the balance of payments for insurance services and pension funds in 2019 was a deficit of US $709m, reported Tempo.
The deficit increased last year after having declined from 2015 when it stood at $888m until 2018 when it reached $567m.
The export of insurance services and pension funds continued to grow in the last five years, from $54m in 2015 to $167m in 2019, growing threefold. However, this performance has not been able to offset the import of these services that amounted to around $876m last year.
Mr Ahmad Nasrullah, of the Department of Supervision of Non-Bank Financial Institutions at Financial Services Authority (OJK), said that his department was still reviewing the 2019 balance of payments. He said that a deficit is usually caused by the amount of reinsurance premiums paid to overseas reinsurers.
Mr Ahmad also said that the reduction in the deficit from 2015 to 2018 was partly due to the large number of reinsurance companies in the country that were willing to accept bigger risks. This reduced the portion of reinsurance placed abroad.
However, he stressed that the reinsurance capacity in the country is still relatively small compared to the potential for growth. “So foreign reinsurance for risk diversification is still very much needed by general insurance companies and domestic reinsurers,” he said.
He said that the domestic industry has tried to continue to reduce the deficit, including by strengthening the capacity of reinsurance companies. However, their efforts had not been sufficient. Insurance and reinsurance companies, according to him, need to continue to improve business quality.
Increased reinsurance capacity and the quality of the insurance industry is considered to be the solution to reduce the deficit.
“Companies need to improve their professionalism, risk selection or underwriting processes, human resources, corporate governance, infrastructure, and information technology systems,” he said.